Legal & General Group PLC (LSE:LGEN)’s outgoing chief executive Nigel Wilson has called for a more patriotic investing culture in the UK to stimulate growth in London’s flailing capital markets.
Speaking at the London Stock Exchange on Tuesday, where L&G was awarded ‘Britain’s Most Admired Company’ for the second year running, Wilson said there was cause for optimism for the UK capital markets, but cultural changes are needed.
“We’ve muddled through for 15 years, and the UK economy has amazing potential,” said Wilson.
Although the UK “missed the last tech boom… we have great universities, which are much more entrepreneurial, much more focused on growth. We have £6 trillion of largely discretionary long-term capital, (but) we’ve chosen to underinvest in growth equity, and invest in lots of low-risk assets. That’s a huge mistake”.
Wilson said the UK “is full of entrepreneurs” that is “absolutely brilliant at startups”, but lags behind when it comes to scaling them up.
“For the previous 50-60 years, we pretty much matched America on everything, including shareholder returns, we’ve only fallen behind because we fell behind in actually getting the basics done and underinvesting in risk assets through de-equitisation.”
He called on the London Stock Exchange to “get more capital flowing into those businesses”.
Wilson called for a “home bias” when it comes to investing. Part of that cultural shift will involve redirecting pension assets to UK companies.
Wilson stated: “So much of that (pension) money is actually spent on overseas assets, which isn’t the right thing to do, we need to be putting that money, which is tax subsidised, into helping our businesses grow much quicker, particularly here in the UK.”
Asked why UK fund managers should invest patriotically when returns are better elsewhere, Wilson said there were “a lot of myths around that”, highlighting AstraZeneca and Shell as UK blue chips that “have outperformed their peers”.
However, “we haven’t supported growth”, he stated.
“This is an economy that should be growing at three to four percent per year; instead, it’s growing at zero percent per year, and that’s just not good enough.
“This is not merely a trustees’ problem; it’s a vast societal issue stemming from our underinvestment—17% of GDP versus the optimal 22 to 24%.
“Regarding R&D spending, we’re at 1.8%, while the government’s target is 2.4%. The best in class is 2.7%. All of that money sits in the UK; we just haven’t allocated it properly to achieve the level of performance required to grow our businesses as rapidly as they should, given the potential they have across the UK.”
